How to best use my flat to retire and help family member

denisekingston

Bootsox wrote: »

I am envious, you appear to have made a fortune by just sitting around in a flat.

Just a thought though re equity release, assuming your flat is leasehold, have you a reasonable amount of time left on the lease (just Googled this as an example)?

The flat has more than 100 years of leasehold left.

jamesd wrote: »

It is not generally a good move to help with student loans because their borrowing is too cheap and their repayment terms too generous. If you want to help a usually better course would be to help with a property deposit because it is hard for a young person to quickly accumulate a big deposit. Then the ownership of the home will cut their costs compared to renting the same type of property, usually, so their reduced expenditure can take care of the student loan.

Good idea, helping her with a flat deposit is an even better suggestion. Just never thought of that cos I didn't think I can ever afford to help her with that.

kidmugsy wrote: »

Here's another way to look at it. When you die, as die we all must, an £800k flat will mean your estate having to pay Inheritance Tax on nearly £500k i.e. tax of almost £200k. That makes a case for your enjoying most of the capital value of the flat over the next few decades. Put at its simplest you could spend half a million and still leave your niece a pretty sum.

The question then is whether you'd rather do an equity release mortgage on your existing property, or release cash by "trading down" to a cheaper property, or buy a bigger property and generate income by taking lodgers. I suppose that with property prices high and interest rates low, equity release ought to be reasonable value at the moment, but that's just a guess. It's certainly not an option to take without careful consideration and expert advice.

I would feel pity not able to leave this flat as an inheritance if I go for the equity release option, but then to pay that amount in inheritance tax is just absurb. Maybe I should enjoy the money from equity release while i am still alive and not worry about it after i am dead.

SailorSam

What's keeping in London. If you're freelance can't you do that from a nice little cottage overlooking the sea somewhere with mountains behind you.

denisekingston

SailorSam wrote: »

What's keeping in London. If you're freelance can't you do that from a nice little cottage overlooking the sea somewhere with mountains behind you.

I like city life, can't see myself living in the countryside.

PensionTech

Well, there are other cities, of course - much cheaper ones than London. You could be facing an instant gain of half a million pounds to "downsize" to a bigger property in a different city.

AnotherJoe

Pick a cheaper city? Move out from what must be a very central place in London?

The bottom line is, the fact its worth £800k is only of relevance if you are willing to release some of the equity from that, and moving into a cheaper place or equity release are your only two options.

Plus, you say you are already struggling with expenses. So how will you cope when you finish working? I think you need to look at getting yourself into a more stable financial situation.

Andypandyboy

To sit on an asset so large and be struggling daily is madness. You need to make it work for you.

If you are still working is there not another area of London just a bit further out that you could move to and free up capital?

I would seriously consider it, I am afraid I don't understand the mentality of wanting to struggle now to leave monies for others. I am sure you niece would not want that.

If you are not working or could change jobs is there nowhere that you have friends/relatives that you would consider moving to ?

Imagine having the luxury of up to 800k to spend. In many parts of the country, even those close to London, you can get a nice place for a much smaller sum.

denisekingston

I don't have family or friends in other cities, my social life and only sibling and niece is in London. It will be a struggle to move outside of central London after living in this area for more than 40 years. Especially as I get older I like to be able to get around town easily without having to travel much.

Appreciate all the comments and I think equity release sounds like a very viable suggestion which I have never heard before this. Will definitely look more into it.

If I were to change my mind in the future and sell the flat and move to a cheaper area, say with £500K profit after purchasing a cheaper flat, what should I do with 500K? Do I just keep it in savings account and use it slowly for the rest of my life?

Andypandyboy

I can see why you wouldn't want to move then. I agree equity release seems the way forward. I would make sure you go with a reputable company though and get the contract checked out by a solicitor who is working for you.

AnotherJoe

denisekingston wrote: »

I don't have family or friends in other cities, my social life and only sibling and niece is in London. It will be a struggle to move outside of central London after living in this area for more than 40 years. Especially as I get older I like to be able to get around town easily without having to travel much.

Appreciate all the comments and I think equity release sounds like a very viable suggestion which I have never heard before this. Will definitely look more into it.

If I were to change my mind in the future and sell the flat and move to a cheaper area, say with £500K profit after purchasing a cheaper flat, what should I do with 500K? Do I just keep it in savings account and use it slowly for the rest of my life?

Effectively, though you'd probably be looking at investing it rather than just cash in a bank as thats a sure fire way to lose money.

The same would apply to the cash from equity release. At 60, you life span is probably in the region of 90, so you'll need to plan for that money and state pension to last you that long.

You probably need to look at a financial analysis of your income and expenditure over the next 30 years or so and determine what would work best.

In your position I'd also be worried that a 1 bed flat at 800K was at the top limit of its 'natural price', so another way of looking at investments would be to move to say a cheaper 2 bed now in a slightly less central area because I'd expect a 2 bed to rise more over the next say 20 years than a 1 bed. There's just a bigger market for them.

So instead of taking out say £300k and investing it, you could look at another way, you'd have say a £600k "investment" that would be your 2 bed flat you moved to, releasing £200k to live on now with an eye to eventually selling it and moving to a 1 bed, releasing more money "twice" because the flat would have increased in price overall, and a 2 bed has risen more than a 1 bed.

PensionTech

If I were to change my mind in the future and sell the flat and move to a cheaper area, say with £500K profit after purchasing a cheaper flat, what should I do with 500K? Do I just keep it in savings account and use it slowly for the rest of my life?

Well...

One thing you could do with spare cash is actually put it into a pension. That will help you to pass money on if you want, and you get tax relief on it too. You can only put in maximum £2880 a year if you're not earning (grossed up by 20% relief to £3600) but if you're still working freelance and getting taxable earnings from that, then you could contribute up to the maximum of whatever you're earning. That money gets invested, you can take it out when you want (though it would be counted as income so you might be taxed on it if it takes you above your personal allowance, undoing some of the tax relief that you got in the first place), and it can also be passed on when you die with much less tax to pay on it than normal IHT.

But it sounds like you do need an income of some description so I'd cover that first. And enjoy yourself! If my grandparents said they were trying to choose between a round-the-world trip or saving for my inheritance, I know what I'd tell them to do - I'm sure your niece would do the same.

(By the way, out of curiosity I looked at Newcastle city-centre apartments to see what kind of prices you'd be looking at. I chose Newcastle only because my sister and aunt have each lived there in the past for several years and loved it, and it is most definitely a city. A central 2-bed penthouse with amazing views over the city would cost £325k. Easy to negotiate less as a cash buyer as well. £475k could then be spent on doing lots of stuff that would help you to make new friends - starting a course of some sort, taking dancing lessons, going travelling... opening a bar!)